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Social ScienceDana's Ribbon World makes award rosettes. Following isinformation about the company:Variable cost per rosetteSales price per rosetteTotal fixed costs per month$3.006.006000.00Required:1. Suppose Dana's would like to generate a profit of$1,160. Determine how many rosettes it must sell toachieve this target profit.2. If Dana's sells 2,180 rosettes, compute its margin ofsafety in units, in sales dollars, and as a percentage ofsales.3. Calculate Dana's degree of operating leverage if it sells2,180 rosettes4a. Using the degree of operating leverage, calculate thechange in Dana's profit if unit sales drop to 1,853 units.4b. Prepare a new contribution margin income statementto verify change in dana's profit.
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Dana's Ribbon World makes award rosettes. Following is information about the company: Variable cost per rosette Sales price per rosette Total fixed costs per month $ 3.00 6.00 6000.00 Required: 1. Suppose Dana's would like to generate a profit of $1,160. Determine how many rosettes it must sell to achieve this target profit. 2. If Dana's sells 2,180 rosettes, compute its margin of safety in units, in sales dollars, and as a percentage of sales. 3. Calculate Dana's degree of operating leverage if it sells 2,180 rosettes 4a. Using the degree of operating leverage, calculate the change in Dana's profit if unit sales drop to 1,853 units. 4b. Prepare a new contribution margin income statement to verify change in dana's profit.
Expert Answer
1.
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Sales price per rosette Variable cost per rosette Contribution margin per rosette $6.00 $3.00 $3.00 $6,000 $1,160 $7,160 Fixed cost per month Add: Target profit Divide: Contribution margin per rosette $3.00 2,387 Number of units must be sold to achieve the target Therefore, 2,387 rosettes must be sold to achieve the target.
2.
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Fixed cost per month Divide: Contribution margin per rosette Break even sales in unit $6,000 $3.00 2,000 Actual sales Less: Break even sales in unit Margin of safety in units 2,180 2,000 180 Margin of safety in units Multiply: Selling price per unit Margin of safety in dollars 180 $6.00 $1.080 Margin of safety in units Divide by: Actual sales Margin of safety as a percentage of sales 180 2,000 8.26%
3.
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Sales (2,180x$6) Less: Variable cost (2,180x$3) Contribution margin Less: Fixed cost per month Profit $13,080 S6,540 $6,540 $6,000 $540 Contribution margin Divide by: Profit Degree of operating leverage, if it sells 2,180 rosettes $6,540 $540 12.11
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